Market Sucks

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Sep 5, 2008 12:44 pm

Is anyone else feeling the heartburn from this market?  I'm not getting many client calls, but I know some of them have to be a little scared.


Money that was put in within the last year has just taken a beating, even in things that were supposed to be more on the conservative end.


It feels a little like all hope is lost, which should be when things turn around, but given what's going on, I for one do not see what will help stablize markets and turn them around.

Sep 5, 2008 1:05 pm

Deleveraging.  That's why nothing is working right now.  Capital is evaporating everywhere, and there is nothing to replace it , ESPECIALLY at the institutional level.  All of the major players are shedding assets, and their is no ability to leverage assets anymore.

 
The only thing that is going to cure this market is time.  Dead CDO assets have to find their way to new lucky owners.  It's not about asset classes or earnings, or equity valuations.
Sep 5, 2008 1:13 pm

So what are you doing with cash that's been parked on the sidelines?  Stay in cash?  Bonds?

 
I'm tired of seeing accounts slowly bleed, then yesterday gush blood.  It's just a ton more painful than a sharp drop.
 
When was the last time something like this happened historically to reference?
Sep 5, 2008 1:20 pm

2000-2002.  If you think this is painful, you should have been an advisor then...

Sep 5, 2008 1:28 pm
Indyone:

2000-2002.  If you think this is painful, you should have been an advisor then...

 
 
No Thanks.
 
Here is a good article from Bill Gross.  This is what all the talk was about on CNBC yesterday if you caught that:
 
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/Investment+Outlook+Bill+Gross+Sept+2008+Bull+Market.htm
Sep 5, 2008 1:55 pm

You know...Bill's a smart guy, but he also called a 5-6000 Dow pretty much at the bottom of the last bear market.  I remember it well, and I remember thinking, "What's a bond guru doing making calls in the stock market?"  For sure, he makes some excellent points, but while I pay attention to his calls on bonds, I heavily discount whatever he says when he discusses effects on equity markets.

 
No doubt, it's been a tough 12-15 months, but I don't see us repeating 2000-2002.  We simply started at a much lower valuation than we did in the last bear market.  My advice would be to wade in slowly with new money, but be patient with the money that's already in the market.  Some of the worst damage is done by investors and their advisors that give up just before the bottom.
Sep 5, 2008 2:02 pm
Indyone:

Some of the worst damage is done by investors and their advisors that give up just before the bottom.

 
I'm at that point. 
Sep 5, 2008 3:04 pm
snaggletooth:
Indyone:

Some of the worst damage is done by investors and their advisors that give up just before the bottom.

 
I'm at that point.
 
To be honest, I'm not far behind you.  It gets pretty tough to keep your emotions in check when all you see is down, down, down, down.  It's harder yet when you start having those tough client reviews (I just signed about 40 annual review letters, so my next month is going to be lots of fun).  Despite the difficulty, we have no choice but to set our emotions aside and talk our clients off the ledge.  This is when we really earn our money.
 
About eight years ago, I had to sit down with a client and keep him from heavily skewing his portfolio to tech stocks (he was 55 at the time).  I remember him saying, "Wow, you sure are pessimistic about things."  I told him that I only looked pessimistic from his optimistic POV.  I told him, "you're 55 and you've made some good money in this market.  In a few years, you'll want to retire and it's my job to make sure that you have something when you get there."  We stayed the course and he survived the downturn with much less damage than he would have had we made his desired changes.
 
Last year, he semi-retired and started taking social security.  Between that and his part-time income, he draws very little from his retirement funds.  Even so, last month when we met to review his accounts, he was determined to completely withdraw from the stock market, and he actually said something to the effect of "Boy, you sure are optimistic about the stock market."  I reminded him about our conversation some eight years back and then told him that I held roughly the same POV that I did eight years ago.  I told him, "Eight years ago, you were way over here at the left and I was in the middle.  Today, you are almost all the way to the right, and I'm still here in the middle.  Part of my job is to, regardless of the market outlook, try to keep you somewhere here in the middle...neither too optimistic nor too pessimistic, as both emotions can do a lot of damage to your portfolio."
 
It was a good conversation and he left the office in a much better frame of mind, but if I'd known eight years ago what I do today, I would have just put him in a VA and been done with it.
Sep 5, 2008 3:29 pm

My own opinion..the next few months are going to be really ugly....The bank of China is looking for a bailout from their gov because they invested in......US Govt backed bonds and Fannie and Freddie bonds, which have declined significantly (to the tune of 1 trillion). Lehman is teetering...Merril is having trouble moving the ugly discounted debt...From 5.7% to 6.1% unemployment.  Hell, theres Ice sheets the size of Manhattan breaking off up north AND to top it off, I think I read Miss Jones is engaged.  Why do we continue to live?

Sep 5, 2008 3:47 pm
Indyone:
snaggletooth:
Indyone:

Some of the worst damage is done by investors and their advisors that give up just before the bottom.

 
I'm at that point.
 
To be honest, I'm not far behind you.  It gets pretty tough to keep your emotions in check when all you see is down, down, down, down.  It's harder yet when you start having those tough client reviews (I just signed about 40 annual review letters, so my next month is going to be lots of fun).  Despite the difficulty, we have no choice but to set our emotions aside and talk our clients off the ledge.  This is when we really earn our money.
 
About eight years ago, I had to sit down with a client and keep him from heavily skewing his portfolio to tech stocks (he was 55 at the time).  I remember him saying, "Wow, you sure are pessimistic about things."  I told him that I only looked pessimistic from his optimistic POV.  I told him, "you're 55 and you've made some good money in this market.  In a few years, you'll want to retire and it's my job to make sure that you have something when you get there."  We stayed the course and he survived the downturn with much less damage than he would have had we made his desired changes.
 
Last year, he semi-retired and started taking social security.  Between that and his part-time income, he draws very little from his retirement funds.  Even so, last month when we met to review his accounts, he was determined to completely withdraw from the stock market, and he actually said something to the effect of "Boy, you sure are optimistic about the stock market."  I reminded him about our conversation some eight years back and then told him that I held roughly the same POV that I did eight years ago.  I told him, "Eight years ago, you were way over here at the left and I was in the middle.  Today, you are almost all the way to the right, and I'm still here in the middle.  Part of my job is to, regardless of the market outlook, try to keep you somewhere here in the middle...neither too optimistic nor too pessimistic, as both emotions can do a lot of damage to your portfolio."
 
It was a good conversation and he left the office in a much better frame of mind, but if I'd known eight years ago what I do today, I would have just put him in a VA and been done with it.
 
Yet another example of sage advice and wisdom from Indy.
 
I got a bit of much-needed encouragement this morning when a lady called to get a couple thousand from her American Balanced Fund. She invested $40,000 in August 2002 (Yes, I realize that was the bottom) and has since withdrawn just over $22,000. Her account balance, ever after yesterday's bloodletting, is $35,000.
 
The market works, dang it. It really works.
 
 
Sep 5, 2008 4:10 pm

It's friday and I am checking ourt shortly.... last night I attended a formal event sponsored by the Muncipal Government of Hangzhou, China. Hosted by the City and the People's Republic of China. I will post Monday some very interesting observations of what the Chinese are doing immediately after the spotlight from the Oylmpics in Bejing. In attendance was Ambassador to Canada , Vice - Mayor of Hangzhou and a nine member delegation.

Interesting evening and should give we in North America some thoughts to ponder.
Sep 5, 2008 11:56 pm

Every time we go thru this, we say, this time its different. Long Term Capital Management, the Asan Contagion, 14% cd's in a 20% inflation world, 9/11. And each time, it IS different. But its the same. We come out of it. We are coming to the end of a 10 year period of virtually no return in the equity markets, very unusual. But if you believe that the world is coming to an end, you have to believe that this is  not going to continue for another year or two. Yes we will probably see more days like yesterday that are really tough to take. But i really believe much of the damage is behind us.  Dont ever forget that the market will bottom long before the economic fundamentals do.  Throw in the towel, then try to be right in deciding when to get back in. It just aint gonna happen.


Most important, clients dont need us if we are depressed and if we cant take it anymore. I dont feel much differently than a lot of people posting here. But clients (and prospects) need our leadership. They need to hear from us and the need us to ask them questions like, when do you need the money? Are we properly allocated? Are we properly diversified?
 
I spent part of my morning calling clients today, figuring i need to talk to them before their August statements get opened. Every one of them, without exception, and they were all pretty much down 10-15%, every one of them at the end of the conversation said some variation of "thanks for calling, i really appreciate hearing from you"
 
I dont mean to be a pollyanna about whats going on. I know its serious, and i know its tough not only for clients but for us. But we need to rise above it, for the sake of our clients and for the sake of our businesses.
 
On another, not so related note, I was pretty encouraged to see the market hold near support, after the horrible numbers that came out this morinng. There is some underlying strenght taking hold here, whether its for the long term or not.
Just my two cents
Sep 6, 2008 12:22 am
Sportsfreakbob:

Every time we go thru this, we say, this time its different. Long Term Capital Management, the Asan Contagion, 14% cd's in a 20% inflation world, 9/11. And each time, it IS different. But its the same. We come out of it. We are coming to the end of a 10 year period of virtually no return in the equity markets, very unusual. But if you believe that the world is coming to an end, you have to believe that this is  not going to continue for another year or two. Yes we will probably see more days like yesterday that are really tough to take. But i really believe much of the damage is behind us.  Dont ever forget that the market will bottom long before the economic fundamentals do.  Throw in the towel, then try to be right in deciding when to get back in. It just aint gonna happen.


Most important, clients dont need us if we are depressed and if we cant take it anymore. I dont feel much differently than a lot of people posting here. But clients (and prospects) need our leadership. They need to hear from us and the need us to ask them questions like, when do you need the money? Are we properly allocated? Are we properly diversified?
 
I spent part of my morning calling clients today, figuring i need to talk to them before their August statements get opened. Every one of them, without exception, and they were all pretty much down 10-15%, every one of them at the end of the conversation said some variation of "thanks for calling, i really appreciate hearing from you"
 
I dont mean to be a pollyanna about whats going on. I know its serious, and i know its tough not only for clients but for us. But we need to rise above it, for the sake of our clients and for the sake of our businesses.
 
On another, not so related note, I was pretty encouraged to see the market hold near support, after the horrible numbers that came out this morinng. There is some underlying strenght taking hold here, whether its for the long term or not.
Just my two cents
 
Thanks Bob for your insight.  It's pretty sad that sometimes other advisors need to be calmed at times too.  A lot of my clients are down in the 10-15% range too, so I'm glad to hear I'm not the only one (although sometimes it feels that way).
 
I'm just not trying to take extra, unneccessary risks.  But nothing is working very well, so it makes it a little more painful.  What I am really worried about are my clients looking to retire in the next year or so.  Fortunately though, two of my larger clients about to retire just said their companies want to keep them for an extra year or two.  So at least for them, we won't have to crack the egg for a couple years...huge benefit.
 
Regarding the market, it will be interesting to see what news comes out about FNM and FRE.  I can imagine those holding the preferreds or common shares won't be having a fun weekend.
Sep 6, 2008 1:40 am

Wow... after reading this thread I guess my world is very different from your world.  I started to toot my horn, but decided that wasn't going to help you or your clients (I moved it to the end of the post).  You are focusing on the bad news and not the good.  Sure there are some tough times ahead for some segments of the economy and some firms may fail.  We've also had a few economic mismanagements which have helped get us to where we are now.  Real estate likely will drop for at least another 9 months to a year, at which time most of the excess should be taken out of the market and prices will stabilize and then resume to their historic 4% annual appreciation rate. 

 
More banks will fail, many more will fail and the taxpayer will bail out the depositors.  It's going to be nothing like the bank/thrift/savings & loan failures in the late 80s.  We had over 500 banks fail in a single year!!  And guess what?  Life went on.
 
The Fed has quit lowering rates, the dollar has likely bottomed out with the consequence of lower oil prices.  The market has had a nice correction after 5 straight years of up (don't you all think we were over-due for some profit taking?).  We are going to get rid of the deadweight of a president which should further boost confidence in the US globally and likely will cause some further strength in the dollar.  The continued focus on alternative energy will create US jobs and develop technologies to export to the rest of the world. 
 
I've had a whole two "worried" client conversations this year.  Sure people are down a bit, but generally down about half as much as the market as a whole.   My revenue is up for the year and we have unsolicited prospect appointments coming in at about 3 a week.  I'm working harder than I'd like to.  We are averaging into this market.  I've always been a fan of using true guaranteed principal investments (CD or bond ladders, fixed annuities) as part of the allocation model, instead of just cash or bond funds (managed bonds are in this same category). 
 
My first ugly in the market was Black Monday in 1987 - which was a hell of an exposure to the raw panic of markets.  I had been registered about 3 1/2 years.  I remember watching the TV thinking that if the markets went belly up, what kind of job I'd try to get.  For those of you whose market history is a little weak, we lost 20% of the market value in a single trading day.  As we went through the sell offs and momentum panic of 2000, 2001 and partially 2002, it made '87 look like a walk in the park.  The US & the economy will survive the current problems. 
Sep 7, 2008 12:27 pm

Ice - what am i missing. Yes the common and i think i read pfd holders will be skanked on this. But it should help provide liquidity to the mtge market, make it easier to get a mortgage for folks on the cusp, slow down the foreclosure rate. Anybody who didnt know the govt was going to take over these two companies was living in zimbabwe.

 
After hours Friday, all the big banks were trading up 3-4 % on the news
I'm not saying that this takeover is going to solve all of our problems by any stretch, but its all been anticipated, and isnt going to f*** things up anymore than they already are.
 
What i REALLY dont want to see, is the market trade up on this news in the morning, and then give it all back, which is what we have become accustomed to.
Sep 7, 2008 10:20 pm

S&P Futures up 33 and Dow Futures up 248. Lets hope it holds thru the day tomorrow. If it does, this will be the first time that i can recall in this bear mkt, that we've bounced off a higher low than the previous low. We ARE overdue for a decent rally, lasting a week or a couple of weeks.

Sep 8, 2008 12:53 pm

Here's something you can use:

 
On October 9, 2002, the market hit its bottom with close to a 3% drop in the day.  Over the next 12 months, the market returned almost 33%.
 
If you waited just 1 month to return to the market, November 8, 2002, by October 9, 2003, you would have only gotten about 16%.
 
So half of the return for the next year after the bottom in 2002 occured in the first month.
Sep 8, 2008 1:14 pm

Good point Snags, How easy it is for us (ME) to forget.

Sep 9, 2008 1:53 pm

I wonder how American Funds will hold up due to their heavy exposure to FNM common in their portfolios. Surely they unwound some of their positions in anticipation of the equity being worthless before the fed announcement.

Sep 9, 2008 4:04 pm

Does anyone else find themselves just sitting and laughing at this market?




 
A 300+ point "up" day doesn't affect me in the least anymore because I know we'll give it all back the very next day.